Aged Care – Estate planning and substitute decision-making
“My Aged Care” was introduced on 1 July 2013 and consists of the My Aged Care website and the My Aged Care contact centre. This initiative of the Commonwealth Government provides an integrated web-based portal for care recipients, assessors and service providers (visit www.myagedcare.gov.au). Under the Budget released on 3 May 2016 $136 million will be spent over the next four years on the My Aged Care contact centre to meet a significant increase in demand.
The Commonwealth Government has in the last three years introduced changes to the aged care system known as “Living Longer Living Better” (LLLB).
The reforms are designed to address:
- The escalating proportion of the population of people aged 65 and over; and
- The exponential future increase in the cost of aged care as a result.
The LLLB reforms introduce the concept of user pays as a trade-off for more choice for care recipients.
The key reforms include:
- Removal of low and high care distinction – under the quality of care principles 2014, a provider must provide the care or services set out under those principles to any care recipient who needs them.
- Accommodation bonds and charges no longer apply.
- The fees charged for home care are based on the level of care required whilst the fees charged for residential care are based on the level of care required and accommodation.
The actual fees charged will depend on an assessment of income and assets. In other words, the level of Government support will depend on the financial position of the care recipient, with the level of support diminishing the higher the level of income and assets of the care recipient. The assessment therefore differs from that formally applying, which was an assessment based on income only. The inevitable consequence is that a care recipient will in the future pay more for aged care.
The basis of the fee payable by a care recipient is a complex formula simplified by a “fee estimator” on the My Aged Care website.
Care recipients will be asked to pay:
- An accommodation payment; or
- An accommodation contribution (depending on means).
An accommodation payment reflects a market price for the accommodation (room) and an accommodation contribution reflects a means tested contribution for the accommodation (room) provided.
The LLLB reforms also require a provider to publish the maximum prices charged for a room – currently the range is $250,000 to $550,000.
The reforms introduce two categories of residential care recipients:
- Low means residents who pay:
- Refundable Accommodation Contributions (RACs); and
- Daily Accommodation Contributions (DACs).
These payments or contributions are based on means tested amounts (a formula combining income and assets converted to a daily amount). The Commonwealth pays all approved residential care providers an accommodation supplement for each resident whose “means tested amount” is below the supplementary threshold – that is $53.84 or $35.08 per day depending on how recently the facility was built.
- Non low means residents who pay:
- Refundable Accommodation Deposits (RADs); and
- Daily Accommodation Payments (DAPs).
A full explanation of the fee structure is beyond the scope of this article. How the fee is paid is, however, of crucial importance in relation to estate planning and a consideration of substitute decision-making (that is, powers of attorney and advanced care directives).
A person entering into the aged care system, particularly residential aged care (and also that person’s family), will have a number of challenges to consider including:
- The legal capacity of that person at the time of entry.
- The representative(s) appointed by that person at the time of entry.
- The adequacy of the formal appointment of the representative(s).
- The impact the cost of aged care will have on the value of the estate of that person over time.
- How that person will pay for the aged care – particularly the combination of the RAD, DAPs and RAC.
- Whether the RAD will be eroded over time by deduction of DAPs or whether the RAD will be maintained at entry level over time.
- A detailed understanding of the written agreement to be entered into with the provider (Price Agreement). The provider almost certainly will require the appointment of an attorney or representative and in some cases may require:
- a guarantor of the Price Agreement – e.g. a family member; and/or
- a registered or unregistered (equitable) mortgage over property owned either by the resident or a third party to secure payment obligations of the resident under the Price Agreement.
- The adequacy of that person’s current will to deal with and react to the now changing nature of both the composition of that person’s estate and the escalating liability of aged care.
- In many cases a decision will need to be made as to whether to rent or sell the former family home. In both cases (depending on how the accommodation payment or contribution is to be paid), investment of the rental proceeds or sale proceeds may need to focus on income rather than capital growth.
- In the case of a couple, whether they will both enter the aged care system at the same time and whether they will be separated or continue living together. If they do not enter the system at the same time, issues of jointly owned property arise which in some circumstances impact on the means test assessment for the person in care. Consideration may need to be given to the severance of the joint ownership and a reconsideration of both parties’ wills.
- The prohibition against third parties paying accommodation payments for a resident has been removed but there is still the requirement that any refund be made to the resident, or more likely meaning the estate of the resident. If a family member pays the RAD on behalf of a resident, in the absence of security, that person will be an unsecured creditor of the estate.
It becomes obvious when discussing these challenges that the person / resident is being called upon to make decisions at a time when frailty and decreasing capacity may create the need for powers of attorney and advance care directives. These documents must, however, be put in place when the person has the required legal capacity, preferably well before retirement. It has been estimated that over 50% of people in residential care have a dementia diagnosis. As people live longer the requirement for trusted representation and assistance becomes inevitable. Whether this is to be found within the family or from outside the family will vary from situation to situation. In the absence of any good reason to the contrary, one would think that family is the starting point. If it is not then alternatives need to be considered.
The changing landscape in aged care brings with it the need to anticipate and respond to both the system itself and personal circumstances. Delay beyond the critical point (loss of capacity or failure to properly structure income and assets) will be a cause of trouble not only for the individual, but also for their family.
To quote Lewis Carroll, “The time has come the walrus said, to talk of many things…”
For more information, please contact:
Mark Minarelli
Director
p. +61 8 8124 1808
e. Email me
This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Should you wish to discuss any matter raised in this report, or what it means for you, your business or your clients' businesses, please feel free to contact us.